‘Robust demand’ for Boeing aircraft to push shares even higher

Natalie Naccache | Bloomberg | Getty Images

Sheikh Mohammed bin Rashid Al Maktoum, United Arab Emirates vice president and prime minister, center blue sandals, passes a Boeing Co. 787-10 passenger aircraft, operated by Emirates Airlines, during the 15th Dubai Air Show at Dubai World Central (DWC) in Dubai, United Arab Emirates, on Monday, Nov. 13, 2017.

“Robust demand” for Boeing’s commercial aircraft presents a compelling investment opportunity, according to Jefferies analysis.

A persistent pileup of commercial jet orders will lead Boeing to grow deliveries 6 percent annually through the next ten years, according to Jefferies’ Sheila Kahyaoglu. The analyst reiterated her buy rating and bumped her 12-month price target.

“We have increased confidence that Boeing can grow EPS at a low double-digit rate supported by robust demand for its commercial aircraft and higher productivity,” wrote Kahyaoglu in a note to clients Tuesday. “Given the size of the backlog, near-term production is well supported, but the opportunity set should likely keep backlogs at elevated levels.”

Boeing has been a Dow Jones industrial average leader this year, up nearly 70 percent since January. The jet manufacturer hit a record high on Nov. 8.

Shares traded 0.6 percent higher in Tuesday premarket trading following the call.

The analyst sees a marked increase in production of Boeing’s popular 787 Dreamliner from the current 12 units per month to 14 per month by 2019. While much of the current swell in demand for aircraft stems from expansion in the Middle East, European and U.S. capacity is likely due for replacement, according to the analyst.

In the case of United and Delta, notes Kahyaoglu, the average age of a widebody craft is in excess of 15 years.

“While order backlogs for the Middle Eastern carriers look full, there appears to be some under penetration for U.S. and European carriers that have older fleets, with little in the way of backlog,” she explained. “Delta Airlines has a fleet of 163 widebody aircraft with an average age of 17 years. The airlines order backlog is for 49 aircraft.”

The craze for planes is set to keep earnings per shares elevated in the years to come, added the analyst. She now expects adjusted EPS of $12.51 in 2019 and raised her 12-month price target to $312 from $300, representing 18 percent upside from Monday’s close.